Tuesday, June 7, 2011

Natural-Gas Use May Increase 50 Percent by 2035 in ‘Golden Age'

Global natural-gas use may rise more than 50 percent by 2035 from last year to overtake coal as the second-most used fuel, theInternational Energy Agency said.

While a surge in gas use will improve air quality in many cities, cut coal use and lower energy costs, climate-change targets would be missed and temperatures would rise beyond a goal of 2 degrees Celsius (3.6 Fahrenheit), the Paris-based organization said today in a report.

“We have seen remarkable developments in natural-gas markets in recent months,” Nobuo Tanaka, executive director of the Paris-based adviser to developed nations, said in the report, titled “Are We Entering a Golden Age of Gas?”

The new assumptions for increased gas use are based on growing demand for the fuel in China, slowing growth of nuclear power, increased production of gas from so-called unconventional sources including shale, lower gas prices and rising use in transport, the IEA said. Unconventional gas would account for 40 percent of the 1.8 trillion-cubic-meter gain in consumption.

“There is a strong potential for gas to take on a larger role,” Tanaka said.

Chinese gas demand, now about 100 billion cubic meters a year and roughly equal to Germany, may soar to match that of the 27-nation European Union by 2035, according to the report. China has 16 of the 20 most polluted cities in the world, Fatih Birol, the IEA’s chief economist, told reporters in London. Half the reductions in carbon-dioxide emissions from more gas and less coal use would come from China, he said.
‘Much More Livable’

“Cities will be much more livable,” he said. “We see a substantial drop in all pollutants.”

Demand for the cleanest-burning fossil fuel may rise to 5.1 trillion cubic meters a year by 2035, the agency said. That’s 600 billion cubic meters more than in the agency’s annual World Energy Outlook last year under a base scenario.

Gas will overtake coal as the most popular fuel after oil, with its share of the energy mix climbing to 25 percent from 21 percent, according to the IEA.

A greater role for gas in the global energy mix may mean world temperatures rise by 3.5 degrees Celsius, Birol said.

“This gas scenario does not keep us to a 2-degree Celsius trajectory that we would like to see,” Birol said. “The strong penetration of gas is not enough to reach the climate goals that we have.”

The IEA cut its price outlook by about 20 percent from last year due to the greater availability of gas from shale and other deposits. Gas prices are now about $1.50 to $2.50 a million British thermal units lower than in the IEA’s base case, the New Policies Scenario, Birol said. Still, the IEA forecasts prices will rise to average $9 a million Btu in Europe by 2015, excluding tax. The U.S. price will reach $5.60 a million Btu by that time with the price in Japan at $11.50 a million Btu.

Natural gas for July delivery rose 10.1 cents, or 2.2 percent, to $4.808 per million British thermal units at 9:57 a.m. on the New York Mercantile Exchange. The futures have climbed 9.2 percent this year.

The U.S. will likely remain a “gas island” Birol said, adding that there probably won’t be any major imports or exports. In Europe the price link to oil won’t disappear completely, he said, though contracts will include more spot-gas pricing and more volume flexibility.
Renewables Policy

If prices remain low, it may put pressure on some governments to review their existing renewables policies, Birol said. Cheaper energy means more energy use, he said. For now the IEA assumes governments won’t alter their policies on renewable energy.

Producing gas from shale deposits requires large volumes of water and chemicals to fracture the rock so it releases methane, the IEA said. More studies are needed to assess the environmental footprint of shale production, it said.

A golden age for gas hinges on the industry’s ability to address this issue, Birol said. Gas producers must use the latest technology to find solutions to the problems for gas to reach its potential as a fuel. New technology may boost future prices, he said.

“If the companies want to see the golden age of gas they need to apply golden standards for the best practices in order to produce unconventional gas,” Birol said.